‘Tax Reform 2.0’ Would Permanently Curtail State and Local Deduction

Tax legislation released Monday would make permanent a limit on state and local tax deductions (SALT) put in place as part of last year’s revamp of the federal tax code.

The tax reform bill signed into law in 2017 caps the federal tax deduction that homeowners can take for their state and local taxes at $10,000. The cap is set to sunset in 2026.

According to Route Fifty:

House Ways & Means Chairman Kevin Brady, of Texas, unveiled a package of three bills dubbed “Tax Reform 2.0.” A provision in one of the bills would remove the Jan. 1, 2026 expiration date for a $10,000 cap on the deduction individual taxpayers can claim on their federal tax returns for certain state and local tax payments.

The cap imposed on the so-called SALT deduction was among the more controversial aspects of last year’s tax overhaul and elicited strong push back from local government groups and some state officials. But it also provided one of the heftiest offsets for the corporate and individual tax cuts that are central to the tax law.

But the tax proposals face long odds in the Senate.

Sen. John Thune, a South Dakota Republican who is a member of the Republican leadership said last week that the chances are “probably slim to none” that the Senate will take up sweeping tax legislation ahead of the November elections, the National Journal reported.

By capping the SALT deduction, revenues shift from state and local governments to the federal government, constraining local policy options. Furthermore, the cap impacts Marylanders more than the residents in any other state – and consequently, Maryland counties, according to The Government Finance Officers Association (GFOA) in The Impact of Eliminating the State and Local Tax Deduction Report.

Maryland Attorney General Brian Frosh has joined Maryland with Connecticut, New Jersey and New York in suing the federal government over capping the state and local tax (SALT) deduction through last year’s tax reform. The claim alleges that the new $10,000 SALT cap violates the U.S. Constitution’s Equal Protection Clause and the 10th Amendment, which protects states’ rights.

Stay tuned to Conduit Street for more information.

Useful Links

Previous Conduit Street Coverage: House Tax Plan Partially Eliminates #SALT Deduction

Previous Conduit Street Coverage: Maryland Joins Three States In SALT Suit

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